The Johnsons Change Their Life Insurance Coverage Harry and Belinda Johnson spend S20 per month on life insurance in the form of a premium on a $10,000 paid-at-65 cash-value policy on Harry that his parents bought for him years ago. Belinda has a group term in surance policy from her employer with a face amount of S200,000. By choosing a group life insurance plan from his menu of employee benefits, Harry now has $100,000 of group term life insurance. Harry and Belinda have decided that, because they have no children, they could reduce their life insurance needs by protecting one an- other's income for only four years, assuming the sur- vivor would be able to fend for himself or herself after that time. They also realize that their savings fund is so low that it would have no bearing on their life insurance needs. Harry and Belinda are basing their calculations on a projected 4 percent rate of return after taxes and infla- tion. They also estimate the following expenses: $15,000 for final expenses, $20,000 for readjustment expenses, and S5,000 for repayment of short-term debts. (a) Should the $3,000 interest earnings from Harry's trust fund be included in his annual income for the purposes of calculating the likely dollar loss if he were to die? (See the discussions about the Johnsons in ChapterI beginning on page 34.) Explain your response (b) Based on your response to the previous question, how much more life insurance does Harry need? Use the Run the Numbers worksheet on page 366 to arrive at vour answer (c) Repeat the calculations to arrive at the additional life insurance needed on Belinda's life (d) How might the Johnsons most economically meet any additional life insurance needs you have determined they may have
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